Top insurance complaints of 2007

Report from the Ohio DOI:

Insurance Department Announces Top Consumer Complaints of 2007, Saves Ohioans $10.7 Million

Claim denials top list; Department offers tips to help with filing claims.

COLUMBUS — Claim denials from insurance companies were the number one complaint of Ohio insurance consumers in 2007, according to statistics released by the Ohio Department of Insurance.

Nearly one-third of the 7,140 consumer complaints received by the Department dealt with the denial of claims by insurance companies. There were 312 more consumer complaints filed in 2007, up from 6,828 complaints in 2006. As a result of complaint reviews, the Department saved Ohio consumers more than $10.7 million in 2007.

A closed complaint is a complaint that has been reviewed and resolved to the satisfaction of the state or jurisdiction in which it is filed. The following lists show the top five types of consumer complaints for Ohio and the United States:

Top five types of Ohio consumer complaints in 2007

1. Claim Denials, 31.6%
2. Delays, 15.9%
3. Unsatisfactory Settlement/Offer, 13.1%
4. Cancellations, 4.6%
5. Premiums/Ratings, 2.7%


Top five Ohio complaints by type of coverage

1. Accident/Health, 42.2%
2. Auto, 26.8%
3. Life and Annuity, 13.2%
4. Homeowners/Renter, 12.1%
5. Other Lines, 5.7%

Top five types of national consumer complaints in 2007

1. Delays, 16.0 %
2. Denial of Claims, 15.0 %
3. Unsatisfactory Settlement/Offer, 9.8%
4. Cancellation, 4.6%
5. Premium/Ratings, 4.4%

Top five national complaints by type of coverage

1. Accident/Health, 36.4%
2. Auto, 34.4%
3. Homeowners, 12.5%
4. Life and Annuity, 9.0%
5. Commercial Multi-Peril, 1.8%

A total of 222,814 nationwide consumer complaints were reported to the National Association of Insurance Commissioners (NAIC) in 2007. This represents a 3.6 percent decrease from the number of nationwide consumer complaints reported during the 2006 calendar year. This information is based on the submission of closed complaint data to the NAIC from the state insurance departments. Aggregate data can be accessed on the NAIC’s web site, http://www.naic.org/.

To help avoid problems getting claims paid, the Ohio Department of Insurance offers these tips:

Know Your Policy – Understand what your policy says. The policy is a contract between you and your insurance company. Know what’s covered, what’s excluded and what the deductibles are.

File Claims as Soon as Possible – Don’t let the bills or receipts pile up. Call your agent or your company’s claims hotline as soon as possible. Your policy might require that you make the notification within a certain time frame.

Provide Complete, Correct Information – Be certain to give your insurance company all the information they need. Incorrect or incomplete information will only cause a delay in processing your claim.

Keep Copies of all Correspondence – Whenever you communicate with your insurance company, be sure to keep copies and records of all correspondence and telephone and in-person contacts.

Ask Questions – If there is a disagreement about the claim settlement, ask the company for the specific language in the policy that is in question. If this disagreement results in a claim denial, make sure you obtain a written letter explaining the reason for the denial.

Don’t Rush into a Settlement – If the first offer made by an insurance company does not meet your expectations, be prepared to negotiate to get a fair settlement. If you have any questions regarding the fairness of your settlement, seek professional advice.

Auto and Homeowners Claims – Auto and homeowners policies might require you to make temporary repairs to protect your property from further damage. Your policy should cover the cost of these temporary repairs, so keep all receipts. Also, keep any damaged personal property for the adjuster to inspect. If possible, take photographs or video of the damage before making temporary repairs.

Health Claims – Ask your physician to provide your insurance company with details about your treatment, medical conditions and prognosis. If you suspect a provider is overcharging, ask the insurance company to audit the bill and verify whether the provider used the proper billing procedure.

If you (as opposed to your doctor) are required to submit the claim, file it as soon as you receive your medical bill, send it to the correct address and keep a copy for your records.
The Explanation of Benefits (EOB) is a statement from the insurance company explaining its claim determination and benefit calculation. You should review your EOBs carefully in conjunction with the medical bills and insurance policy or certificate.

If you disagree with your health carrier’s claim determination, you should follow your carrier’s grievance or appeals process. Details concerning your plan’s appeal and grievance procedures should be included in your employee handbook, evidence of coverage or insurance policy.
To make sure your provider is in the network, ask your insurance company. Providers move in and out of networks, and even though you may be told a group of doctors is in your network, your particular doctor may not be.

For more information about insurance options and tips for choosing the right coverage, go to www.insureUonline.org. Ohio consumers who would like to file a complaint against their insurance company or have questions can call the Department’s consumer hotline at 1-800-686-1526 and visit www.ohioinsurance.gov.

Home Buying Checklist

Shopping for your dream house? It’s important to keep insurance in mind throughout the home buying process. Most lenders won’t provide a mortgage without insurance coverage. Your insurance company or agent, together with your realtor, can help you get what you want – a good home that is properly protected.
EVEN BEFORE YOU START LOOKING FOR A HOME
Put yourself in the best possible position to be able to afford a home, receive the lowest possible mortgage rate and get insurance for your new house. This takes advance preparation on your part.

• Check your credit rating: Good credit helps you in many ways, including getting a mortgage at a good rate. Depending on the state and the insurer, it may also help you save money on your homeowners insurance. Get a copy of one or all of your credit reports. Make sure they are accurate and report any mistakes immediately. The credit report helps you see how your credit standing compares to others. If your credit is not as good as it should be, begin to improve it immediately.
• Check your home insurance claims-filing history: Get a copy of your loss history report, such as a CLUE report from ChoicePoint or an A-PLUS report from ISO. This is a record of home insurance claims you have filed. If you have not filed any insurance claims in the past five years, you will not have a loss history report. The better your claim record, the less you may pay for insurance. A good claims record can also be important if you are selling the home you are currently living in. However, a past claim does not have to be a problem; the reulting repairs or improvements, if done properly, can make a property more attractive to buyers and insurers.
• Renters insurance: If you are currently renting, it’s important to have insurance for your personal property. Your landlord’s coverage will not cover the things you own. If you haven’t owned a home before, it might be helpful to have a history of insurance when you go to buy your first home.
• HOUSE HUNTING:
  As you look at homes, remember that characteristics of the house (where it is, how it's constructed and the kind of shape it’s in) can send your insurance rates up or down.
• Construction of the house: If you plan to live near the Atlantic or Gulf coasts, consider a brick home because it is more resistant to hurricanes. If you are buying in a seismically active region, look for newer homes built to current codes, or older homes that have been bolted to their foundations. They are better able to withstand earthquakes.
• Age of the house: Older homes sometimes have features such as plaster walls, ceiling molding and wooden floors that could be costly to replace. Such special features may raise the cost of insurance. Also, an older home that has been updated to comply with current building codes is typically less expensive to insure than an older home that is not up-to-date.
• Condition of Roof and House: If you are considering a “fixer upper,” you may pay more for insurance until clear improvements are made. In particular, check out the condition of the roof. A new roof in good repair will be attractive to insurers and will save you money as well as aggravation.
• Plumbing, heating and electrical systems: These systems can wear out, become unsafe with age or become dated as safer technologies are introduced. Recent upgrades make your home safer and less likely to suffer fire or water damage.
• Safety devices: Homes equipped with smoke, fire and burglar alarm systems that alert an outside service may get sizeable discounts. Strong doors, dead bolt locks and window locks may also reduce insurance costs.
• Pool, wood burning stove, etc.You will need higher property and liability coverage if you are buying a home with features such as a pool or a wood burning stove. In the case of a pool, consider getting additional coverage, such as an umbrella or excess liability policy.
• Quality and proximity of the fire department: Homes near a fire station, those with a hydrant close by and those located in communities with a professional rather than volunteer fire department will cost less to insure.
• Location, location, location:Homes near the coast will be more expensive to insure because the risk of hurricane, wind or water damage is greater. In many states, you will pay the first few thousand dollars in damage before your insurance kicks in. You also need to think about the threat of floods or earthquakes. You will need separate insurance for these risks and it can be costly. Also, around the country, there are high-risk areas vulnerable to hurricanes, brush fires or crime that might not qualify for private insurance. To make insurance available, there are state-sponsored Fair Access to Insurance Requirement (FAIR) Plans. FAIR Plans, however, can be expensive and provide less coverage.
  PLACING A BID
  You have looked at a number of properties and are narrowing your search to a few homes. Now you need to get more specific information on the house and its insurability.
  Check the house’s loss history reportAsk the current homeowner for a copy of the house’s insurance loss history report. This will provide information regarding claims filed during the last five years and answer two questions that any savvy homebuyer should ask: Are there any past problems in the home? If damage has occurred, was it properly repaired? Prior claims are not barriers to getting insurance, but you should know the history of the home before you go to closing.
• Get the house inspected: A thorough inspection of the home is very important. The inspector should: check the general condition of the home; show you where potential problems might develop; double-check that past problems have been repaired; and suggest upgrades or replacements that may be needed. If a house has been well-maintained, you should have no trouble getting insurance. However, if the inspector raises questions, your insurance company will as well. In particular, have the inspector check for water damage, termites and other types of infestation. Special attention should be paid to the electrical system, septic tank and water heater. Find out if there is an underground oil storage tank, as many insurers will not provide policies for homes that have one.
• Contact your insurance professional: Don’t wait until the last minute to think about insurance. Ask your current insurance professional if the house will qualify for insurance and get an estimate of the premium. The sooner you act, the smoother the process will be. If you do not have an insurance agent or company representative, get recommendations from family, friends or co-workers. Select someone you know and trust, as he or she will be an advisor for many years.
  Shop around for the best coverage: Most people spend months looking for a house, but only spend a few minutes insuring it. Insurance companies sell insurance in different ways – some through their own agents, others through independent agents or brokers and still others directly by phone or over the internet. Select the arrangement that you are most comfortable with. Get the names of several highly regarded insurers. The higher the financial rating, the better prepared they will be if a real disaster strikes. Then compare prices – it could cut hundreds of dollars off the cost of your bill.
  PURCHASING THE HOUSE AND INSURANCE
  Congratulations, you are set to purchase your new home. Now you want to be sure you are getting the right insurance coverage at the lowest possible price.
• Take the highest deductible you can afford: The higher the deductible, the lower the premium. Since most people only file a claim every eight to ten years, you will save money over time and preserve your insurance for when it’s really needed.
• Ask about available discounts for:
  Multipolicy (home, car or other policies with the same company)
  Smoke detectors
  Fire extinguishers
  Sprinkler systems
  Burglar and fire alarms that alert an outside service
  Deadbolt locks and fire-safe window grates
  55 years old and retired
  Long-time policyholder
  Upgrades to plumbing, heating and electrical systems
  Earthquake retrofitting to make the home safer
  Wind-resistant shutters
• Get enough insurance to:
  Completely rebuild the house in the event it is destroyed by fire or other insured disaster . Replace everything in the house.
  Protect your liability in case someone is injured on your property and sues you.
• Ask about additional coverage such as:
  Replacement cost for possessions
  Extended or guaranteed replacement cost for the structure
  Building code upgrades
  Sewer and drain back-ups
  Inflation-guard
  Umbrella coverage for a pool or other high-risk items
  Special riders for jewelry, collectibles and expensive items
• Flood, earthquake and windstorm risk: Damage caused by flooding and earthquakes is not covered by standard homeowners insurance policies. Instead, homeowners will need to pay an additional premium for coverage that is provided through the government’s National Flood Insurance Program (NFIP). To get flood insurance, your community must participate in the NFIP program. Policies for coastal properties will have a sizeable windstorm deductible, which means the homeowner may be responsible for thousands of dollars of damage before insurance kicks in. It pays to know what is in your policy. Earthquake insurance is offered by private insurance companies. In California, coverage is available through the California Earthquake Authority, a state program, as well as the private market. It can be expensive and comes with a high deductible.
• AFTER YOU PURCHASE YOUR NEW HOME
  Properly maintain the houseMaintain your home as you would your car. Every year, there are important things you should do to reduce the chance that you will experience water damage, fire or other insured loss. Insurance does not pay for routine maintenance or damage resulting from neglect. The cost for proper care should be calculated into your overall budget. It’s your responsibility to be the “risk manager” for your home. If you do your part to reduce insurance losses, not only will your home be safer, it will also save you money on your insurance bill.
• Keep insurance up-to-date: Let your insurer know about alterations, additions and improvements to your home. Major purchases and lifestyle changes such as a marriage or divorce should trigger a call to your insurance professional. This way, you can maximize your insurance dollars by not being either under- or over-insured.

RESOURCES
ChoicePointwww.choicepoint.com

To order a CLUE report, see www.choicetrust.com

Fair Isaacwww.fairisaac.com

To order a credit report, see www.myfico.com

For help with your credit score, call 800-777-2066

Institute for Business & Home Safety www.ibhs.org

Insurance Information Institute www.iii.org

Insurance Information Network of California www.iinc.org

ISO www.iso.com

To order a copy of your A-PLUS report, call 800-709-8842

National Flood Insurance Program www.floodsmart.gov

Ten Most Asked Questions

Here you go: The most commonly asked insurance questions in the history of asking insurance questions:
1.
Q: Can someone get a life insurance policy on me without my knowledge?
A: Anything under the sun is possible. In order to get a life insurance policy issued, a person should have:
1. An insurable interest in the insured (you’re financially impacted if someone dies)
2. A need for the insurance $$ amount requested (no $5 million polices on your kids, unless she’s Miley Cyrus)
3. Access to personal information IE DOB, SSN, address, medical history
4. Signature of the insured (if insured is an adult)
5. Cooperation from insured if insurer requires paramedic exam (blood, urine, saliva, med history) or a physical exam. The people performing the exams are required to check IDs.
In order to collect on the policy, the person would need:
1. Cooperation from family or the executor of the estate to get death certificates.
2. Be outside the contestability period of the policy (usually two years from policy issue date) to avoid the scrutiny of the insurance company.
In the US, there are around 1,500 - 2,000 life insurance companies and they all do business in a similar manner with small differences in underwriting. None of them would make a profit by paying death claims on fraudulently obtained policies; so safeguards are put in place to guard against deception.
Without a paramedic exam or physical, there is a limit on how much insurance you can purchase. The industry limit seems to be around $250,000. So purchasing a $1M life insurance policy without the insured’s knowledge would be a challenge requiring a good amount of deception and fraud at policy issue.
This limits the size and type of policy someone could purchase. Small policies (say less than $100,000 for a young person, $25,000 for an older person) get less scrutiny. Group policies require only a few questions, but again limit the death benefit that can be purchased (usually only spouses can be named to purchase 50% of employee’s death benefit).
So, my conclusion; unless you’re the target of a well thought out deception, you’re probably just paranoid or watch too much TV.
2.
Q: My ______ (fill in the blank) died and we can’t find their life insurance policies. Where can I find this information?
A: There is not a central database of life insurance policies. I’ve written an article on searching for missing life policies: http://www.insuranceyak.com/2007/09/20/find-a-lost-life-insurance-policy/ Sorry for your loss and good luck with your search.
3.
Q: I need to file a claim against someone else’s policy. How do I find out who their insurer is?
A: A person or business’s insurance coverage is private information, so you can’t and you don’t. Their insurer will not accept claims from you and in most cases will not even speak with you. If the other party refuses to file a claim or admit fault, you’ll need to involve your insurance company or take legal action. In the case of any legal action, I would recommend involving a lawyer.
Keep in mind your insurance covers you, their insurance covers them. If you have bodily injury or property damage and someone else is the proximate cause, you could file a claim with your insurance company and allow your insurer to subrogate the claim against their insurance company.
4.
Q: What’s it like to work for _____(fill in the blank)? Is their training good? Will I really make $100K in my first year selling insurance?
A: There are a number of insurance companies who are always hiring sales agents, “account managers” or (my favorite) “manager trainees” : Farmers, Met Life, State Farm, Allstate, Primerica, New York Life, United American. The list goes on. There's a reason why they’re always hiring: They wash out 85-95% of all their new agents within two years, 98-99% after 5 years. These are SALES jobs; you sell you eat, don’t sell don’t eat. Some will pay you a stipend or advance your commission if you’re not selling, but the bottom line is you have to sell, week in, week out or your butt is out in the street. Now there always seems to be 1 out of 100 people who thrives is sales; kid natural who makes $100K her first year. If you’re one of these people, God has blessed you; may he continue to do so. Most other successful sales people just work hard and persevere long enough until they succeed. Average income for a first year sales agent? 30K if you work really hard and get a little lucky.
My advice: if you’re really interested in the industry, get a job working for a successful agent with a good reputation in the business and learn the ropes. When you’re ready, look for a good situation working for yourself selling what you like to sell.
See http://ohio-insurance-forum.blogspot.com/2007/06/q-how-does-insurance-agent-earn.html for a rundown on commissions earned and learn how big you’ll have to be in order to survive the business.
5
Q: A big expensive repair need to be done to my house, will my homeowners insurance cover it?
A: Homeowners insurance covers unexpected occurrences. Policies and coverage vary by state and policy, but repairs to a house are usually not covered unless the damage was caused by a covered risk.
Typically excluded items: earth movement, settling, faulty material, faulty workmanship, tree roots, old age & wear and tear, insect, vermin and pet damage.
So unless the proximate cause was something covered: fire, wind, falling objects, vehicle damage, building collapse, broken pipes you have no coverage. Water backup is an endorsement that usually has to be added to a policy; don’t have it, no coverage. If you call the insurance company claims center, they will log your call and start the count on number of claims you’ve filed in the past 5 years. Chances are 2 claims in three years will trigger a cancelation even if 0 dollars are paid on one claim. So you may want to hypothetically discuss this claim with YOUR AGENT.
See more about Homeowners coverage at:
http://ohio-insurance-forum.blogspot.com/2007/07/homeowners-insurance-covered-or-not.html

Tune in next week for questions 6 - 10

Homeowners insurance: Covered or Not?

Q: Does Homeowners insurance cover ANYTHING? Seems all I hear is people getting denied coverage, what a rip-off.


A: Homeowners and property insurance commonly has exclusions. As "all-risk" it generally covers any UNEXPECTED OCCURRENCE as long as it's not excluded.

Let's see.. excluded items:

• Acts of War
• Flood
• Earth movement (earthquake (may be covered under an endorsement))
• Nuclear accidents
• Animals, birds or fish (Pets that is)
• Motor vehicles
• Aircraft except models or hobby aircraft
• Property of roomers unless related or added through endorsement
• Wear and tear
• Inherent vice or latent defect
• Smog, wet or dry rot
• Discharge of pollutants
• Settling or expansion of pavement walls or roof
• Damage caused by vermin, rodents or insects

For property insurance including renters, vacant or 'standard market' property can be written on DP1 or Broad form coverage. This covers named perils:

• Fire and lightning
• Wind Hail Aircraft
• Riot & Civil commotion
• Vehicle damage
• Volcanic eruption
• Explosion
• Smoke
• Vandalism MAY be covered with an endorsement but usually is excluded if property is vacant
• May be endorsed for loss of use/rent

DP-3 Special form for property listed above but generally not vacancies. May be endorsed for replacement cost. Includes named coverages of DP-1 and also includes:

• Vandalism
• Collapse
• Glass coverage
• FD service charges
• Trees and shrubs (for named perils)
• Falling objects
• Weight of Ice & Snow
• Water leakage
• Freezing of plumbing or explosion of steam and hot water systems
• Power surge
• Damage caused by burglars
• May be endorsed for liability and loss of use/rent

HO-# the "Homeowners Policy" provides "All Risks" coverage includes above and any other UNEXPECTED EVENTS that are NOT EXCLUDED related to Owner occupied dwelling:

• Comprehensive policy covers all personal owned property; dwelling AND contents
• Covers personal liability both on and off premises.
• Covers personal property on and off premise
• Loss of use – payment if you cannot live in property
• Separate structures: garages, sheds, pole buildings fences, pools, any stand alone structure on property
• Covers Theft and mysterious disappearance
• Damage to property of others
• First aid to guests
• Typically endorsed for replacement cost

This is a fairly comprehensive list. Keep in mind that policies vary by state, company and type of property. To get a idea of what is covered under your policy, consult your agent or read the policy language.

Ernesto

Replacement cost

One of the great mysteries of the property insurance world is replacement cost. During my agent days, I was frequently asked to insure property and determine a replacement value of someones house. Talk about conflicts, here's what I'm up against: I've got a homeowner who doesn't want to pay anything for house insurance, a mortgage professional who dictates to me how much coverage he needs and an insurance underwriter who has her own idea of what it should be insured for. Try keeping all three happy at the same time. For my own peace of mind, I always imagined delivering a check, in person, after a total loss and asked myself: would these people be happy with the results? I always aimed for satisfied, not mad (too little) or ecstatic (too much).

To imagine the difference in property valuations, let's look at two different but similar sized houses. One is a Duffy home (I'm just picking a random builder) built in 2001 and the other is a 2 1/2 story federalist style brick home built in 1860 in a historic district of town. Both have a market value that is roughly the same, but the construction techniques are very different.

The Duffy home has 2800 SF and a combo of vinyl and stone facing on the exterior. Common asphalt roof, poured concrete basement, framed with 2X4, 2X6, engineered floor trusses and manufactured roof framing. Steel exterior doors and wood/vinyl windows. Interior is plywood sub-floors with carpet,ceramic tile,vinyl sheet tiling, and engineered wood flooring, walls are drywall. Interior doors are hollow core 6 panel with basic oak baseboard and door trim. Kitchen has standard appliances, granite tile counter tops and semi-custom cabinets. It also includes a Pre-fabricated gas fireplace with manufactured mantel and surround. Modern furnace & HVAC. A very nice home in a upscale neighborhood, market value around $400,000. Good quality all around, but nothing unusual in the construction materials. Almost everything in the house can be purchased or ordered at Lowe's and any competent handyman or construction crew can repair the house.

The 1860 house at 2200 SF has original antique brick exterior with a slate roof. The basement walls are field stone and mortar; at some point the original basement floor has been replaced with poured concrete. The framing is full dimensional lumber with original hardwood floors. Original solid wood exterior doors, original wood windows some leaded decorative windows. Solid wood interior doors, antique oak trim, including hardwood stairs, handrails, chair rails, crown molding (man you'd think the stuff grew on trees). Original brick fireplaces (four of them) and original gas lights (refitted for electric). Modern kitchen and cabinetry, upgraded plumbing, electric & HVAC. A historic home in a upscale historic neighborhood, market value also $400,000. All materials in home need to be repaired since replacement is difficult. To find existing or matching trim, material needs to be salvaged or recreated from antique material. Handymen are usually not up to the job, craftsmen with a specialty in older construction are needed and they don't work cheap.

So what would replacement cost be on both houses? On the newer house, a percentage of the retail value comes from the price of land in a trendy of the neighborhood. Using an industry calculator, the replacement cost for the house would range from $290k to $360K depending on features inside the house. This would suggest the land value of the lot is around $75K.

Using the same calculator on the older house, replacement cost would range from $650K to $750K. The price of the house is dictated more by the market demand for this type of house and less by the value of the land and reconstruction costs. Yet at a real estate closing table, both parties want to see the same replacement cost on their insurance policy. In fact, even after a extensive explanation of historic house replacement, the owner of the 1860s house insisted on a lower replacement cost to keep his homeowners premium down.

Now before we discuss how these two figures are calculated, here are some definitions of property replacement techniques:

•Like kind and quality: replace damaged property using the existing construction techniques and similar materials.

•Modified replacement Cost: Modifies loss settlement to repair or replace home with “commonly used and available materials”
•Extended replacement cost: Will pay to repair or replace home up to 125 percent of insured value.
•Guaranteed replacement cost: Will pay to repair or replace home no matter what it costs.
•Replacement cost of Personal Property: replace old damaged personal property with new property at current cost without depreciation using current products
Replacement: Rebuilding old from scratch.

Reconstruction: Rebuilding damaged property.

Actual Cash Value: Insuring for the market price of a property. Not enough to rebuild but enough to buy the house next door.



Issues that control the cost of replacement or reconstruction of houses and the major differences between older (say pre-1940) and newer homes.

Replacement Cost.
Valuations based on the cost to replace with similar quality and utility. New replacement cost valuation methods fully consider the additional costs involved in rebuilding a home, particularly older homes, for both partial and total losses.
–For older homes, Full dimensional lumber, original wood flooring, lath and plaster walls and ceilings, heavy rafters and sheathing, stone foundations, extensive use of solid wood trim and doors, crown moldings, etc.
–Impacts of requiring updating to building codes, environmental issues, such as lead paint and asbestos which have to be remediated (particularly older homes).
–Demolition and debris removal costs.
–Higher average labor costs in a rebuilding project.

Reconstruction Cost
Includes more accurate valuation estimates for rebuilding an exact replica of the home, including original materials. Replacement cost contracts require this unless the insured is willing to accept commonly used materials (or if the insured doesn't know he has modified replacement cost on his policy). It also recognizes the higher costs in most situations to rebuild a home – even a newer home.
»Time is of the essence in helping the displaced property owner.
»Wages paid to subcontractors on a single job often are higher.
»Materials costs can be higher due to loss of volume discount and normal demand and availability factors.
»More special orders may be required.



Cost for each type of construction vary widely based on cost of materials and cost of labor in different areas of the country. To improve accuracy, insurers use location adjustment programs that are based on the full Zip code, not just the first three digits.

The intent of any cost valuation program is to maintain a high level of accuracy, recognizing that costs are subject to change. To do this, the programs:
- collect data quarterly from over 2,600 areas in the U.S.
- collect union and wage rates for more than 75 trades
- contain over 30,000 line items of construction, including productivity rates and crew sizes to install each of them.
- take into account regulations, debris removal stipulations and license fees for all municipalities.
- study reconstruction/replacement cost data from past claims to more closely reflect the cost insurers pay when a loss occurs.
- consider local cost concerns such as building code requirements, hillside foundation costs, architect fees, and variables for older structures.
- conduct extensive quality control analyses to validate real cost activity from claim settlements, both partial and total.

Accurately generating replacement cost is a important step to take when closing on a house or reviewing homeowners coverage. It is particularly important to the owners of pre-1940 houses and restoration buffs all over the US. Take time to review your policy or ask your agent pointed questions about your coverage.

Definitions of Rental Property Coverage

May 14th 2007 Called Kym the adjuster to touch base and find out where we were in the claims settlement. No word yet, she's waiting on input from the GC to get her numbers together. I ask if she's received copies of the leases (hint hint I want my loss of rent coverage) she has received them; she says the company will pay out based on how long they estimate the renovation will take and an advance is possible if needed. We'll see how that goes. I'm hoping this doesn't require the services of an attorney.

Since there's nothing going on on my claim I'll cover the basics of Dwelling coverage on rental property (property that's not owner occupied). This applies to residential property with 1 - 4 units and no commercial exposure (no apartments on top of stores or houses used for a public access business). This does not apply to commercial coverage.

A standard policy has four parts:

1. Declarations - Insurance company name, name of insured, address of property, amount of coverage, premium, and policy period.
2. Insuring Agreement - Contains consideration clause, effective time & location, policy limits, ACV limitations, company options, direct vs indirect losses, insurable interests and perils covered.
3. Conditions - Conditions that apply to insurer and insured; an example would be insured requirements to notify insurer of loss.
4. Exclusions - What's not covered. Flood, war, nuclear, earthquakes and wear & tear (including insect & animal damage) are general exclusions that apply to all policies.

The policy is broken into the base policy (called a standard fire policy or SFP) and a Dwelling Form endorsement (Def. an endorsement is an addition to a Property & Casualty policy that adds more coverage; called a rider if it's Life & Health related). The SFP covers basics like fire & lightning. Additional loss coverage depends on which endorsement you buy:

1. DP-1 endorsement - Basic Form or DP-1 - Pays ACV (replacement cost minus depreciation) coverage (replacement cost may be available for extra $$) Named coverages are: Wind, Hail, Aircraft, Riot & Civil commotion, Vehicle, Volcano, Explosion & Smoke. DP-1 policies are generally only sold on vacant property (under renovation or for sale) SO another important endorsement is vandalism and malicious mischief (VMM). May not cover trees and scrubs.
2. DP-2 endorsement - Broad form, Includes all coverages on DP-1 plus replacement cost on structure, burglary damage, falling objects, weight of snow & ice, water leakage, freezing pipes, power surge and glass. VMM is included without an endorsement. Usually includes trees and scrubs.
3. DP-3 endorsement - All risks -includes all coverages in DP-2 and generally covers anything not excluded. Theft only applies to build in items.

To determine what your coverage is, read your policy (it's a thumping good read..for an insurance geek) or look at your declarations page. If it's still not clear, discuss with your insurance agent or call customer service at your insurance company. Be sure to press for details, since your agent may not know what he's selling.

The policy will pay up to a certain amount of money for the above mentioned losses based on your declarations page:

Deductible - Usually $500 to $1000, amount property owner is to pay before losses are paid.

Coverage A: Dwelling- the building itself including all structures and fixtures attached to the property. May be replacement cost or ACV. Usually contains an inflation provision so coverage (and premium) go up a certain percentage every year on the policy anniversary date. Determining proper replacement cost is a discussion for another day.

Coverage B - Other structures - Outbuildings or unattached items (like fences). Usually 10% of Coverage A. Pays in addition to Coverage A, so on a total loss, if you have $100,000 of Coverage A you would receive up to an additional $10,000 under coverage B.

Coverage C - Personal property - Again a percentage of Coverage A: This tends to vary by insurance company. This is limited to the owners personal property at a rental house, not the tenants things.

Coverage D - Loss of Rents. Usually 10% of Coverage A. Covers fair market rent for up to a year or whatever period the insurer thinks is needed to repair property.

Liability Coverage Sometimes called Coverage E - Usually between $100,000 to $500,000 of coverage. Coverage for owners to pay $$ for negligent acts that caused bodily injury or property damage related to owning the property.

Med Pay - Sometimes called Coverage F -Provides small amounts of medical coverage so injured parties don't need to sue for liability coverage to get minor injuries paid for.

Other coverage included (read your policy to see if they're included):

Board up and securing property after loss.

Debris removal - certain limits may apply, such as removal of fallen trees.

Fire department service charges -typically around $500 is covered.

Coverages for code compliance - extra $$ paid to bring older properties up to current code. For example the asbestos shingles on my rental.

Later I'll discuss how properties are valued and how insurance companies pay claims.

Ernesto TIG